Are you looking to invest in cryptocurrency? Or are you planning on capitalizing on the benefits of adopting crypto as a payment option? Regardless of how you plan on utilizing crypto, it is clear that you will need the services of exchanges. While this is a given, unwritten rules govern the operations of these platforms. And it is these rules that should help you choose, from a plethora of options, the exchanges to buy the best cryptocurrency.
In light of this, this piece will introduce you to the technicalities that define cryptocurrency exchanges and some of the ways to identify the reliable ones. Afterward, we will walk you through our review methodology as well as our list of cryptocurrency exchanges.
What Is a Cryptocurrency Exchange?
Like its traditional counterpart, an exchange platform offers its users a means to trade assets. However, in this case, the assets in question are digital currencies. Apart from this basic functionality, exchanges are beginning to capitalize on their growing influence in the crypto space to take on more responsibilities. This assertion is evident in the explosion of Initial Exchange offerings (IEOs), which startups are increasingly adopting. Here, an exchange uses its platform as a launching pad for startup offerings for a share of the funds raised from the crowdsale campaign.
How Do I Differentiate Between the Types of Crypto Exchanges Available in The Market?
While all cryptocurrency exchanges perform the same tasks, albeit, in slightly different ways, it is imperative to know the differentiating factors that separate these entities and how it should feature in your research. These factors include:
The Governance Model of The Crypto Exchange
Cryptocurrencies, like bitcoin, opened our eyes to the possibilities of decentralization and the downsides of centralized systems. It is, therefore, unsurprising that the concept, which borders on autonomy, has its place within the auspices of the exchange market. As such, there are decentralized cryptocurrency exchanges stylized as Dex. A cryptocurrency exchange that falls under this category gives users autonomy as regards their private keys. In essence, a decentralized exchange allows direct communication between traders. There is no need for intermediaries or requirements that entails users to transfer the control of their holdings to exchanges.
Here, smart contracts feature prominently to deal with issues that could trigger disputes. Some of the advantages of trading on Dex is the zero or negligible transaction fee it offers users as well as its insusceptibility to attacks and hacks – since the platform does not own or operate wallets. Likewise, the framework of this class of exchanges promotes privacy. Know Your Customer and Anti-Money Laundering procedures do not apply to Dex users, especially the fully decentralized ones.
On the other hand, centralized trading platforms, which are the most popular exchanges, stand as intermediaries and central authorities governing the activities of users. And so, they establish ecosystems, which rely on their capacity to provide fast and secure trading infrastructures. In return, central exchanges charge trading fees for the transactions enabled on their websites. Also, they run an exchange model that entails users to utilize their hot wallet services before they can access the exchange facilities.
Like the decentralized exchanges, the centralized ones have their advantages. Perhaps the most obvious one is the unparalleled liquidity and the trade volume they offer. Users get to carry out instantaneous trades since centralized exchanges can generate and support more activities than decentralized ones.
The Type of Exchanges the Platform Enables
The second differentiating factor of exchanges is the type of trades the platform enables. Here, the details to look out for is the exchange’s readiness to facilitate fiat-related trades. Some exchanges offer users exchange facilities for trading pairs involving fiat currencies and cryptocurrencies. In other words, users can buy crypto with fiat currencies or sell cryptocurrencies for fiat directly on the sites. That said, some restrict their members to crypto to crypto trades. The type of exchanges you are looking to undertake would determine the type of trading platform
Furthermore, we have exchanges providing trading infrastructures for crypto derivatives. Here, traders can trade futures and speculate on the future price movements of cryptocurrencies. In most cases, these platforms also enable margin trading, which allows traders to leverage their positions and multiply their profits.
Then there are trading platforms providing crowdfunding services in the form of IEOs to new crypto projects. These platforms usually function like launching pads by showcasing new projects and using its influence to help source for investors. In return, the token issuers pay the exchange a percentage of funds raised.
Now that you have an insight into the various classes of exchanges available to crypto participants, the next section will explore some of the questions you need to answer when considering an exchange for your various crypto activities.
Is the Exchange Legal in Your Location?
By now, you should have an idea of the legal standing of crypto in your location. Countries with strict regulatory standpoints on matters relating to crypto usually restrict the activities of crypto exchanges. For people located in such countries, cryptocurrency trading or transacting on exchanges might attract penalties. As such, you should ensure that trading crypto is legal in your location before accessing exchange services.
For people living in countries that allow exchanges to operate, there is a need to verify that the cryptocurrency exchange of your choice satisfies regulatory requirements. Since nations are beginning to set up frameworks for their respective exchange market, it has become difficult for exchange platforms to run a global business model. And so, the credible ones would rather snub users located in countries with strict requirements.
A case study is foreign exchanges' reluctance to offer services to US traders because of the unfavorable regulatory terrain of the country. Participants located in this region have only one viable option, which is to patronize US-based cryptocurrency exchanges that have secured licenses to run an exchange business. The same applies to nations formulating and revising the legal obligations of exchanges operating within their jurisdiction. With the advent of stricter crypto regulations, per the EU's 5th Anti-Money Laundering Directive mandates, there are enough reasons to carry out due diligence and ascertain your nation’s standpoint. In other words, you should ensure that the exchange you want to adopt is legal in your location before registering or executing trades on it.
How Efficient Is the Exchange’s Customer Relation Culture?
Quality customer service culture has become a standard in the business world. This notion carries the same level of potency in the exchange market as a platform’s customer service culture is one of the ways to assess its credibility. For one, top cryptocurrency exchanges with globally known brands must set up customer support that caters to a diverse community. As such, these platforms must offer multi-language support systems, which will help users communicate their queries faster and more efficiently. Likewise, you should only go for platforms that provide 24/7 support and give feedback or resolve complaints on time.
For a fast-paced ecosystem like the crypto space, accessing quick and helpful responses to queries could go a long way to determine how much profit you make from your crypto activities. You should ensure that your exchange has a robust customer support system that includes live chat, phone support, email support, and so on. It is also advisable to check that the crypto trading platform is active on popular social media networks.
Does the Exchange Offer Premium User Experience, And Is It Beginner-Friendly?
Cryptocurrency exchange sites deliver several trading features to help users go about their businesses in the crypto market. That said, your ability to access these features and utilize them properly defines how fast you can capitalize on market trends. This is where user experience comes in. User experience is a critical factor to consider when researching crypto exchanges. Here, you need to gauge your expertise in using trading tools found on exchanges, and how easy it is to access and utilize them. To ensure that trading experience is at a premium, you should check that the design and layout of the platform allow easy navigation. The more the features of an exchange, the complex it is for new entrants. And so, always match up your experience as a trader with the platform’s perceived complexity. For newbies, it is advisable to go for an exchange that adopts a simple user interface and less technical trading tools. On the other hand, experts might prefer loaded exchanges, depending on the type and volume of trades they execute. Regardless of the level of expertise of users, it is preferable to adopt a trading platform with a quality mobile app.
Does It Support Advanced Trading?
Just as new entrants will thrive in less complicated trading ecosystems, advanced traders revel in a trading platform loaded with an array of trading features and tools. They would not mind having access to sophisticated and customizable charting tools. For experts, it is imperative to check for additional features embedded in crypto trading infrastructures and ensure that tools ideal for complex analysis are available not only on the web format of the platform but also on the mobile app.
Does It Facilitate High Liquidity and Trading Volume?
As mentioned earlier, centralized exchanges continue to reign supreme over the market. This statement is evident in the volume of trades they process. The largest cryptocurrency exchanges in the space have the infrastructure in place to fill orders, regardless of their sizes. As such, if instantaneous trade is what you want, then large centralized exchanges are the best fit for you. Nonetheless, liquidity, which is a bit dicey, also comes to play when choosing a trading platform. It is advisable to opt for crypto exchange offering high liquidity. You can gauge liquidity by analyzing the number of crypto pairs available on the platform. For people who own diversified crypto portfolios, it is imperative to verify that your chosen crypto exchange has a list of trade pairs that encapsulate your crypto portfolio. Due to the importance of this factor, Coinmarketcap added the liquidity metric to rank cryptocurrency exchanges and determine their penchant for negating the volatility of the market when executing orders.
Although popular cryptocurrency exchanges offer a long list of pairs, there is, however, no guarantee that they will support lesser-known coins. In this case, the best option is to look to smaller crypto exchanges or decentralized exchanges for trading services. Though this might entail that you adopt the services of two or more platforms, it, however, leaves you with an array of options and enough room to bypass issues arising from low liquidity. All in all, it is imperative to sort crypto exchanges by volume or the level of liquidity they offer.
Is the Exchange Decentralized or Centralized?
Like we mentioned earlier, the governance model of cryptocurrency trading ecosystems is one of the core factors differentiating these platforms. On the one hand, we have centralized exchanges offering custody services, subject to compliance requirements, pushing high trading volume, and so on. On the other hand, decentralized exchanges maintain autonomy, preserve user privacy, and evade common security threats. Once you identify the differentiating factor of these two classes of trading infrastructures, it becomes easier to choose the best cryptocurrency exchanges.
Custody should resonate in your decision-making process. Questions to ask here include: is the exchange imposing a wallet infrastructure? Or do I remain in control of my assets at all times? A Custodial exchange offers an inhouse wallet system that holds users’ digital assets and transfers a large chunk of security obligations to itself. In contrast, a decentralized exchange allows users to execute trades directly from their private wallets.
Another vital detail to consider is your viewpoints on privacy. If you are okay with undergoing rigorous security checks, then you will have no problem acclimatizing with centralized exchanges. These ecosystems are bound to comply with Anti-Money Laundering rules by enabling KYC procedures for their users. Though this requirement is critical in the war against crypto frauds, there are concerns that it infringes on the privacy of traders. For example, the logging of users’ sensitive information makes a crypto trading platform a target practice for cybercriminals. Likewise, some traders fear that exchanges could transfer their data to third parties or the government. As a result of these factors, some believe that decentralized exchanges are the ideal choice for privacy proponents because of the absence of KYC requirements.
Note that both models of governance have their advantages and disadvantages. It is left for you to decide the one that suits your trading activities.
Is the Exchange Incorporating Derivative Trades?
As mentioned earlier, a majority of exchanges have become inclined to expand their scope of business to cater to traders interested in trading activities beyond spot trades. Hence, you will find them enabling a separate trading interface for futures contracts. For those interested in derivative trading options, it is imperative to identify the dynamism of one or more cryptocurrency exchanges before opting for one. It is advisable to assess the quality of such operations, the fee policy, the volume of contracts processed, and several other factors.
More importantly, you should consider the leverage provided to traders opting for margin trading. This bit of research is crucial to individuals who are risk-tolerant and would prefer to access up to X100 leverage. Lastly, you should decide whether an exchange solely focusing on derivatives is preferable or one that provides the trading infrastructures for both spot trades and derivatives.
What About Its Security?
Security details of trading infrastructures are vital when comparing exchanges. A critical look at the recurring attacks on these platforms makes it clear that exchanges have to do more to ensure the safety of users. Hence, two-factor authentication has become standard practice for cryptocurrency exchanges, as it gives their users the second level of protection. Also, you should ascertain the security precautions taken to ensure that the exchange’s holdings are less susceptible to hacks, especially for platforms offering custody services. The information you need to research borders on the number of wallets assigned to hold digital currencies and the type of authentication measures set up for each.
You should choose exchanges that utilize multi-sig wallets, which require the inputs of more than one individual in the authentication process. This system curtails single-point attacks or lost assets resulting from misplaced private keys. Furthermore, there is a growing urgency within the crypto exchange space to partner with licensed custodians. You should take advantage of this paradigm shift by choosing platforms with insured cold storage.
For those opting for a decentralized exchange, it is necessary to ensure that there are no loopholes in the system’s protocol. More often than not, decentralized exchanges are open-source projects, which means that anyone can audit the protocol. While you might not command the technical prowess necessary to audit smart contracts, chances are someone somewhere has explored the project and published reviews online. You could hunt for such evaluations and rely on the findings for your security analysis.
How Much Does the Platform Charge on Each trade?
Note that crypto exchanges have the liberty to set any amount as their trading fees. However, for competition's sake, a majority of the exchanges enable low transaction fees. It is now left for you to analyze the disparities between two or more crypto exchange fee policy to choose the most reasonable. We advise that you focus on the long-term effects of compounded charges, particularly if you are looking to execute a high volume of trades. While transaction fee may seem negligible when assessed in the short-term, its accumulation over a long period should serve as the telling factor of the platform’s viability.
While you are at it, check that the exchange provides subsidy frameworks for users actively engaging with the market. In some cases, exchanges offer to subsidize taker fees once the volume of trades executed on the platform hits a specified milestone at the end of each month. The same applies to maker fee, as traders generating a high trading volume access generous subsidy plans. As such, we advise traders looking to facilitate a high volume of orders to explore the fee policy governing the transaction charges of exchanges and ascertain that their activities attract significantly low fees.
What Payment Methods Are Available on The Exchange
Furthermore, you should ascertain the payment options available on the exchange website. This assertion holds for a cryptocurrency exchange that accepts USD or other fiat currency. Depending on the policy of the exchange, you might have access to one or more payment method, and the charges deducted on each transaction may vary.
For traders opting for exchanges accepting traditional payment options, it is crucial to assess the payment systems as well as the policy governing them. Details that should interest you include the payment options available, the minimum and maximum amount payable, the deposit fees, and how long it takes to validate payments. For instance, you could check to see if the exchange accepts transactions from a bank account, then ascertain the transaction fees and the average time it takes to confirm such transactions. The same applies to traders interested in using a credit card to fund their exchange accounts. Once you are done researching the payment policy, you should also consider the terms governing the withdrawal of fiat currency. Check for the supported methods, the withdrawal limits, and other restrictions.
Does It Function as A Launching Pad?
It has become common for exchanges to adopt additional revenue-generating operations like launch pads. They use their platform to promote new projects and earn a share of funds raised via IEOs. The detail about such business models is vital to crypto investors interested in capitalizing on the long-term price movements of promising crypto tokens. And so, we advise that you analyze the process exchanges utilize in listing new tokens on their launching pad. The goal here is to ensure that you opt for an infrastructure that ascertains the legality of startups and projects before accepting to promote their tokens. By so doing, you are sure, to an extent, that you are not getting involved in IEOs plagued with irregularities.
Does the Exchange Have A Native Token?
Just as launching pads have become a common sight in the exchange market, so also has native tokens emerged as a prevailing trend. Exchanges have begun to pay attention to the economic aspect of their ecosystem by issuing native tokens. Token holders often enjoy additional benefits, which include access to a percentage of the platform’s revenue, subsidized trading fees, exciting IEO deals, and much more. Therefore, it is imperative to pay attention to the economic value of exchange tokens and decide whether it should emerge as a deciding factor. One of the factors to consider here is the subsidy rate you stand a chance of enjoying when you use an exchange token to pay for trading fees. Ensure that there is the reduction in the taker and maker fee accumulated whenever you pay with the native token. Also, check if you are eligible to receive a percentage of the revenue of the exchange when you own its native token.
Who Are the People Managing the Platform, And What Is Their Track Record in The Crypto Community?
It is imperative to research the team backing your preferred exchange. This move will help you capture its competence as well as its credibility. To do this, you should ensure that the platform, especially the centralized one, has a thriving community, which the team engages regularly. You should also check to see the commitment level of the individuals that make up the team. A simple way to go about this is to research the community-based projects of the exchange and its successes. Also, track the platform’s response to security challenges that had once questioned its credibility.
Having examined the factors that should feature in your research, the next section takes a look at how Mr. Bitcoins went about our review in the market and picking the best cryptocurrency platforms among the bunch.
What Are the Factors Considered While Compiling the List of Best Cryptocurrency Exchanges?
As it is with our culture, we opted for an organic methodology, which showcased each platform’s strengths and weaknesses. While carrying out our exchange comparison, we analyzed the global reach of each platform as well as its legal standing in different regions of the world. From there, we took a look at the customer service culture of each platform to ensure that they have the resources to cater to their customer base.
Likewise, we assessed the trading experience and mobile-friendliness to gauge the platform's propensity to appeal to new entrants and large demography. Liquidity and trading volumes also came to play, as they projected the exchange’s capacity to execute orders instantaneously. Another factor that features prominently in our methodology is security checks, which helped us ascertain the measures taken to protect users’ digital assets. We expect exchanges to run insured multi-sig wallets, as we used this standard to score the platforms mentioned on our list. Lastly, we analyzed and compared the transaction fees of each platform, the payment method, and the additional operations of each exchange. The payment options we looked out for were credit card, debit card bank transfers, PayPal and other popular methods.
At the end of these rigorous processes, we had 75 exchanges that did considerably well across all boards. We advise that you read through the pros and cons of each to identify details that could help you pick the best cryptocurrency exchanges for you.